R&D spending cuts sharpen vision?

19 May 2010 Sandeep Mehta

A recent article in the Dallas News mentions that TI has cut its R&D budget by more than 25%. These cuts appear to be permanent.

Texas Instruments Inc., a legendary font of innovation, cut its budget for research and development by almost half a billion dollars in 2009. Those reductions are expected to stay in place this year as well. But the Dallas-based company, producer of landmark technology such as the integrated circuit and the pocket calculator, says the approximately 25 percent drop isn’t a sign of declining innovation. Rather, it’s a mark of a maturing, streamlined product portfolio.

TI believes that the cuts are actually helping it sharpen its vision on more important R&D and eliminate unnecessary efforts.
Instead, the company is focused on embedded processors and analog chips, the devices inside cellphones and other mobile goodies that crunch video and handle other complex tasks.

“We’re looking at markets that were maturing or not developing the way we had anticipated” for cuts, said chief financial officer Kevin March.
One source of savings is that TI stopped doing much research into ways to mass-produce its products, leaving that work to manufacturers in Asia that crank out the chips.
TI has also been extricating itself over the last few years from designing baseband chips that connect mobile phones to cellular networks.

The question here is the impact of sudden large changes in the R&D budgets on the overall health of the R&D project portfolio. An underlying theme is that organizations get complacent in their view of their R&D priorities. Or that unproductive projects are really difficult to kill once they have been funded for a while. A large discontinuity forces the organization to revaluate priorities and see how the R&D pipeline is aligned with the priorities.

A concern may be that a sudden large change may actually get rid of good projects along with the bad. One needs to have a good handle on what is in the project pipeline and what results those projects are targetting. If a good view of the pipeline exists, should there be a need for large changes? What is the need for large R&D direction changes if the organization has effective periodic R&D project portfolio reviews? Should not the weak projects be eliminated because their proejcted results would not meet requirements? If such a view of the pipeline does not exist, would not a large discontinuity be a difficult time to develop such a view?

What do you think? Has your organization successfully made large changes in R&D spending? If your organization has an efficient portfolio management process, do you think large changes such as this would be necessary or effective?

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